What?? House prices are likely to fall? Really??? I am shocked.....
WASHINGTON (Dow Jones) -- U.S. home prices have much further to fall, the chief executive of major mortgage-buyer Freddie Mac said Wednesday.
Speaking to analysts on a conference call, CEO Richard Syron estimated that housing prices, from peak to trough, have dropped only a third as far as he thinks they're going to. The McLean, Va.-based company's expecting a peak-to-trough decline of 15% in all.
I think he's being optimistic.
ReplyDeleteI have detailed why I believe prices likely need to fall more like 25% on my blog. Under good conditions and lots of inflation (i.e. higher rents) a 15% correction might restore the traditional relationship between median home prices and median incomes.
The problem is, when prices are falling, buyers have little incentive to make a highly leveraged purchase, even if they can afford it, since their equity will quickly be eliminated.
This asset price collapse will be self-reinforcing and policy makers have basically lost control. They should have continued to raise rates in 2005 until they broke the housing bubble - when they punted on that, they gave up any chance.